The Chemicals Market in the 2025 Tariff Environment

April 2025

The global chemicals industry, already navigating a complex web of supply chain dynamics, regulatory constraints, and volatile demand patterns, has entered a new phase of uncertainty in 2025. The U.S. and several global trading partners, most notably China and the European Union, have imposed or expanded a series of tariffs that directly affect the production, trade, and profitability of chemical products. For asset-based lenders (ABLs), these policy shifts present a fresh set of risks that could materially impact collateral valuations, borrower cash flows, and loan performance. This article provides an overview of the most recent tariff developments, places them in historical context, and outlines the practical implications for lenders with chemicals-related exposure.

Historical Context and 2025 Tariff Overview

Tariffs affecting the chemicals industry are not new. During the U.S.-China trade war that escalated in 2018, chemicals became a major battleground. The current administration’s Section 301 tariffs on Chinese goods included over 1,500 chemicals, with rates ranging from 10% to 25%. In retaliation, China imposed counter-tariffs on U.S. chemical exports, particularly polymers, olefins, and specialty chemicals. These tariffs disrupted global supply chains, altered trade flows, and led to significant price volatility.

Fast-forward to 2025, and the trade landscape has again shifted dramatically. Following the breakdown of multilateral trade negotiations in late 2024 and amid rising geopolitical tensions, the U.S. announced it would implement new tariffs targeting a fresh set of strategic industries. Chemicals were prominently featured including Chinese-origin inorganic chemicals, petrochemicals, and certain polymers. In addition, a tariff was levied on specialty and performance chemicals imported from the EU, prompted by disputes over digital taxation policies. China imposed reciprocal tariffs on U.S. chemical exports such as methanol, ethylene derivatives, and fertilizers. There were also restrictions imposed on technology transfer and export licensing for U.S. companies selling chemical processing equipment and formulations to Chinese buyers. Fast forward to the publishing of this article in April of 2025, and U.S. tariffs on Chinese goods stand at 145%, while reciprocal tariffs from China are now set at a level of 125%.

In early April, the Society of Chemical Manufacturers & Affiliates (SOCMA) issued a statement indicating its support of the administration’s goals of revitalizing U.S. manufacturing but also noting that tariffs will raise feedstock costs for its members, “As this new tariff framework takes effect, specialty chemical manufacturers face deep uncertainty,” SOCMA stated. “Many SOCMA members are now confronting significantly higher costs for the raw materials they rely on — inputs often unavailable at scale within the U.S. These sudden shifts are occurring in the context of complex, global supply chains and long-standing customer commitments. The stakes are high, and so is the pressure to adapt quickly.”

Overview of Market Dynamics in the Chemicals Industry

The chemicals industry operates through a vast, integrated global value chain. Production typically begins with upstream feedstocks such as crude oil and natural gas, processed into basic chemicals like ethylene, propylene, benzene, and ammonia. These are then converted into intermediate and specialty chemicals used in pharmaceuticals, agriculture, construction, and consumer goods.

The industry is characterized by geographically distributed supply chains, with basic chemicals often produced in low-cost regions like the U.S. Gulf Coast, the Middle East, and China, and then shipped worldwide. It is also highly capital intensive, with plants that are costly to build and maintain, often requiring decades-long operational lifespans. This limits operational flexibility. Furthermore, the industry relies heavily on global trade, with many producers—especially in the U.S. and EU—exporting a significant portion of their output. Within this framework, commodity chemicals tend to be highly price-sensitive, while specialty chemicals typically offer more robust margins but rely on innovation and intellectual property. This structure means that even small changes in trade policy can cascade across production, inventory, pricing, and working capital cycles.

Tariff Impacts

The 2025 tariffs are expected to lead to a measurable increase in chemical costs across multiple segments. Early industry estimates suggest cost increases of 8–15% on selected intermediate and specialty chemicals. These increases are driven by the direct pass-through of tariff expenses as well as higher freight and insurance premiums. Margin compression is likely in contract-manufactured and toll-processed products, where price escalation clauses may be limited or take time to adjust. Additionally, longer lead times and inventory build-ups are anticipated, as companies reroute sourcing and front-load shipments in anticipation of or in response to tariff deadlines.

Export competitiveness for U.S.-made chemicals is likely to decline, especially in Asia-Pacific markets now subject to retaliatory duties. Producers will also face higher compliance costs related to customs classification, origin rules, and new documentation requirements. The net effect of these developments is expected to be a squeeze on gross margins, rising working capital requirements, and more variability in sales and receivables cycles.

Key Implications for ABLs with Chemicals Exposure

Asset-based lenders must remain vigilant in assessing how these changes affect borrower performance and collateral stability. Key risk areas include:

• Pricing Volatility: Expect greater fluctuations in input and output pricing, complicating forecasting and margin tracking.
• Inventory Valuation Risks: Inventories purchased or produced pre-tariff may be worth less post-tariff; overstocking to beat tariff deadlines may lead to obsolescence or markdowns.
• Accounts Receivable Deterioration: Slower payment cycles from international buyers impacted by tariffs or caught in geopolitical crossfire.
• Margin Compression: Borrowers with limited ability to pass through tariff costs may experience shrinking EBITDA and covenant pressure.
• Increased Working Capital Needs: Higher inventory levels and delayed receivables collections may strain liquidity.
• Collateral Valuation Concerns: Fluctuating raw material and finished goods values may reduce borrowing base availability.
• Supplier Concentration and Re-Routing Risk: Reliance on a few suppliers or geographies can increase risk in a disrupted trade environment.
• Contract Risk: Fixed-price sales contracts and long-term supply deals may become uneconomical.

Concluding Thoughts: Lender Actions in This Tariff-Challenged Environment

For lenders with exposure to chemicals borrowers, the 2025 tariff environment presents both challenge and opportunity. While the risk of operational disruption and financial strain has increased, proactive measures can mitigate these impacts. Recommended actions include increasing the cadence of borrower communications to understand how they are adapting to tariff changes. Inventory appraisals should be updated regularly to reflect current market conditions and tariff-adjusted replacement costs. Lenders should enhance gross margin tracking to better understand tariff-related pressure points on profitability.

Reassessing borrowing base availability through revised advance rates and updated eligibility criteria for inventory and receivables is also prudent. Scenario planning, including stress testing borrower cash flow under various tariff and volume assumptions, will allow lenders to better anticipate risk. Finally, conducting a legal review of borrower contracts can uncover vulnerabilities related to pricing inflexibility or lack of termination rights.

Ultimately, the ability of ABLs to stay agile, informed, and analytically rigorous will determine how well they can protect collateral value and credit quality in an increasingly protectionist trade landscape. Our team has performed diligence and valuations on behalf of a number of chemicals business over the past year, providing us with unique and highly up-to-date insights into this complex market. We welcome the opportunity to share our perspective and assist you in leveraging the power of our proprietary industry data to benefit your business or a business in your portfolio. We are here to help.